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Selecting a Unique Competitive Equilibrium with Default Penalties

Cheng-Zhong Qin and Martin Shubik
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Cheng-Zhong Qin: Dept. of Economics, UC, Santa Barbara

No 1712, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: The enlargement of the general-equilibrium structure to allow default subject to penalties results in a construction of a simple mechanism for selecting a unique competitive equilibrium. We consider economies for which a common credit money can be applied to uniquely select any competitive equilibrium with suitable default penalties. We identify two classes of such economies. One consists of economies with utility functions being homogeneous of degree 1; the other consists of economies with the number of consumers equal to the number of commodities and traders having quasi-linear utility functions with respect to different commodities.

Keywords: Competitive equilibrium; Credit mechanism; Marginal utility of income; Welfare economics (search for similar items in EconPapers)
JEL-codes: D5 C72 E4 (search for similar items in EconPapers)
Date: 2009-07
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Published in Journal of Economics (June 2012), 106(2): 119-132

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